a.When the price of one good changes,consumers often respond by substituting another good in its place. b.The CPI does not allow for this substitution;it is calculated using a fixed basket of goods and services. c.This implies that the CPI overstates the increase in the cost of living over time. 2.Introduction of New Goods a.When a new good is introduced,consumers have a wider variety of goods and services to choose from. This makes every dollar more valuable,which lowers the cost of maintaining the same level of economic well-being. c.Because the market basket is not revised often enough,these new goods are left out of the bundle of goods and services included in the basket. 3.Unmeasured Quality Change a.If the quality of a good falls from one year to the next,the value of a dollar falls;if quality rises,the value of the dollar rises. b. Attem made to correct prices for changes in qulity.but it is often difficult to do so because quality is hard to measure 4.The size of these problems is also difficult to measure. 5.Most studies indicate that the CPI overstates the rate of inflation by approximately one percentage point per year 6.The issue is important because many government transfer programs(such as Social Security)are tied to increases in the CPI. F.In the News:Shopping for the CPI 1.To collect the data for the CPl,thousands of individuals must check prices in stores
16 a. When the price of one good changes, consumers often respond by substituting another good in its place. b. The CPI does not allow for this substitution; it is calculated using a fixed basket of goods and services. c. This implies that the CPI overstates the increase in the cost of living over time. 2. Introduction of New Goods a. When a new good is introduced, consumers have a wider variety of goods and services to choose from. b. This makes every dollar more valuable, which lowers the cost of maintaining the same level of economic well-being. c. Because the market basket is not revised often enough, these new goods are left out of the bundle of goods and services included in the basket. 3. Unmeasured Quality Change a. If the quality of a good falls from one year to the next, the value of a dollar falls; if quality rises, the value of the dollar rises. b. Attempts are made to correct prices for changes in quality, but it is often difficult to do so because quality is hard to measure. 4. The size of these problems is also difficult to measure. 5. Most studies indicate that the CPI overstates the rate of inflation by approximately one percentage point per year. 6. The issue is important because many government transfer programs (such as Social Security) are tied to increases in the CPI. F. In the News: Shopping for the CPI 1. To collect the data for the CPI, thousands of individuals must check prices in stores
2.This is an article that chronicles a day in the life of one of these shoppers. G.The GDP Deflator versus the Consumer Price Index 1.The GDP deflator reflects the prices of all goods produced domestically,while the CPI reflects the prices of all goods bought by consumers. 2.The CPI compares the prices of a fixed basket of goods over time,while the GDP deflator compares the prices of the goods currently produced to the prices of the goods produced in the base year.This means that the group of goods and service used to compute the GDP deflator changes automatically over time as output changes. 3.Figure 2 shows the inflation rate as measured by both the CPI and the GDP deflator. II.Correcting Economic Variables for the Effects of Inflation A.Dollar Figures from Different Times 1.To change dollar values from one year to the next,we can use this formula: 2.Example:Babe Ruth's 1931 salary in 2009 dollars: Salary in2009 dollars=$80,000×(214.5/15.2). Salary in 2009 dollars =$1,128,947. 3.FYl:Mr.Index Goes to Hollywood a.Reports of box office success are often made in terms of the dollar values of ticket sales. 17
17 2. This is an article that chronicles a day in the life of one of these shoppers. G. The GDP Deflator versus the Consumer Price Index 1. The GDP deflator reflects the prices of all goods produced domestically, while the CPI reflects the prices of all goods bought by consumers. 2. The CPI compares the prices of a fixed basket of goods over time, while the GDP deflator compares the prices of the goods currently produced to the prices of the goods produced in the base year. This means that the group of goods and services used to compute the GDP deflator changes automatically over time as output changes. 3. Figure 2 shows the inflation rate as measured by both the CPI and the GDP deflator. II. Correcting Economic Variables for the Effects of Inflation A. Dollar Figures from Different Times 1. To change dollar values from one year to the next, we can use this formula: 2. Example: Babe Ruth’s 1931 salary in 2009 dollars: Salary in 2009 dollars = Salary in 1931 dollars × Price level in 2009 Price level in 1931 Salary in 2009 dollars = $80,000 × (214.5/15.2). Salary in 2009 dollars = $1,128,947. 3. FYI: Mr. Index Goes to Hollywood a. Reports of box office success are often made in terms of the dollar values of ticket sales
b.These ticket sales are then compared with ticket sales of movies in the past. c.However,no correction for changes in the value of a dollar are made B.Indexation 1.Definition of indexation:the automatic correction of a dollar amount for the effects of inflation by law or contract. 2.As mentioned above,many government transfer programs use indexation for the benefits.The government also indexes the tax brackets used for federal income tax 3. There are uses of indexation in the private sector as well.Many labor contracts include cost-of-living allowances(COLAs). C.Real and Nominal Interest Rates 1.Example:Sally Sa aep osits$1000 into a bank ount that pays an annual interest rate of 10%.A year later,she withdraws$1,100 2.What matters to Sally is the purchasing power of her money a.If there is zero inflation,her purchasing power has risen by 10%. b.If there is6%inflation,her purchasing power has risen by about 4% c.If there is 10%inflation,her purchasing power has remained the same. d.If there is 1%inflation,her purchasing power has declined by about e.If there is 2%deflation,her purchasing power has risen by about 12%. 3.Definition of nominal interest rate:the interest rate as usually reported without a correction for the effeets of inatio 4.Definition of real interest rate:the interest rate corrected for the effects of inflation. real interest rate-nominal interest rate-inflation rate 18
18 b. These ticket sales are then compared with ticket sales of movies in the past. c. However, no correction for changes in the value of a dollar are made. B. Indexation 1. Definition of indexation: the automatic correction of a dollar amount for the effects of inflation by law or contract. 2. As mentioned above, many government transfer programs use indexation for the benefits. The government also indexes the tax brackets used for federal income tax. 3. There are uses of indexation in the private sector as well. Many labor contracts include cost-of-living allowances (COLAs). C. Real and Nominal Interest Rates 1. Example: Sally Saver deposits $1,000 into a bank account that pays an annual interest rate of 10%. A year later, she withdraws $1,100. 2. What matters to Sally is the purchasing power of her money. a. If there is zero inflation, her purchasing power has risen by 10%. b. If there is 6% inflation, her purchasing power has risen by about 4%. c. If there is 10% inflation, her purchasing power has remained the same. d. If there is 12% inflation, her purchasing power has declined by about 2%. e. If there is 2% deflation, her purchasing power has risen by about 12%. 3. Definition of nominal interest rate: the interest rate as usually reported without a correction for the effects of inflation. 4. Definition of real interest rate: the interest rate corrected for the effects of inflation
5.Case Study:Interest Rates in the U.S.Economy Fioure 3 a.Figure 3 shows real and nominal interest rates from 1965 to the presen b.The nominal interest rate is always greater than the real interest rate in this diagram because there was always inflation during this period. c.Note that in the late 1970s the real interest rate was negative because the inflation rate exceeded the nominal interest rate (三)思政设计 引入CPI核算的案例研究一，分析中国的物价消费指数CPI的项目分类与权重。 比较中美CPI核算的篮子构成有何差异？进一步用CPI指数的构成解释中国的消费升 级。 引入中国通货膨胀历史状况的案例研究二，分析中国通货膨胀的整体状况。并 进一步解释不同时期通货膨胀的成因，以及在开放条件下通货膨胀形成的机理。 (四) 课后练习 1.Which do you think hasa greater effect on the consmer price index:a10 ease in the caviar?Why? Deseribe the thres problems that make the consumer price inde an imperfect 2. measure of the cost of living 3.If the price of a Navy submarine rises,is the consumer price index or the GDP deflator affected more?Why? 4.Over a long period oftime,the price of a candy bar rose from$0..60. Over the ame period,the consumer price index rose from 150 to 300.Adjuste for overall inflation,how much did the price of the candy bar change? 5.Explain the meaning of nominal interest rate and real interest rate.How are they related? (五)教学方法与手段 本章教学主要采用课堂讲授、多媒体教学、分组讨论、课堂讨论等。 19
19 5. Case Study: Interest Rates in the U.S. Economy a. Figure 3 shows real and nominal interest rates from 1965 to the present. b. The nominal interest rate is always greater than the real interest rate in this diagram because there was always inflation during this period. c. Note that in the late 1970s the real interest rate was negative because the inflation rate exceeded the nominal interest rate. （三） 思政设计 引入 CPI 核算的案例研究一，分析中国的物价消费指数 CPI 的项目分类与权重。 比较中美 CPI 核算的篮子构成有何差异？进一步用 CPI 指数的构成解释中国的消费升 级。 引入中国通货膨胀历史状况的案例研究二，分析中国通货膨胀的整体状况。并 进一步解释不同时期通货膨胀的成因，以及在开放条件下通货膨胀形成的机理。 （四） 课后练习 1. Which do you think has a greater effect on the consumer price index: a 10 percent increase in the price of caviar? Why? 2. Describe the three problems that make the consumer price index an imperfect measure of the cost of living. 3. If the price of a Navy submarine rises, is the consumer price index or the GDP deflator affected more? Why? 4. Over a long period of time, the price of a candy bar rose from $0.10 to $0.60. Over the same period, the consumer price index rose from 150 to 300. Adjusted for overall inflation, how much did the price of the candy bar change? 5. Explain the meaning of nominal interest rate and real interest rate. How are they related? （五） 教学方法与手段 本章教学主要采用课堂讲授、多媒体教学、分组讨论、课堂讨论等
第二十五章Production and Growth (一）目的与要求 Chapter 25 is the first chapter in a four-chapter sequence on the production of output in the long run.Chapter 25 addresses the determinants of the level and growth rate of output.We find that capital and labor are among the primary determinants of ouput.In how saving and investment capital goods affect t the productio of output,and in Chapter 27,we learn about some of the tools people and firms use when choosing capital projects in which to invest.In Chapter 28,we address the market for labor. The purpose of Chapter 25 is to examine the long-run determinants of both the level and the growth rate of real GDP per person.Along the way,we will discover the factors that determir pro vity of workers and address what governments might do to improv the productivity of their citizens. In this chapter,students should: see how much economic growth differs around the world 2 conside why produd tivity is the key determinant of a country's standard of living analyze the factors that determine a country's productivity 4.examine how a country's policies influence its productivity growth (二) 教学内容 I.Economic Growth Around the World A.Table 1 shows data on real GDP per person for 13 countries during different periods of time. 1.The data reveal the fact that living standards vary a great deal between these countrie 2.Growth rates are also reported in the table.Japan has had the largest growth rate over time,2.76%per year (on average). 3.Because of different growth rates,the ranking of countries by income per person changes over time a.In the late 19th century,the United Kingdom was the richest country in the world
20 第二十五章 Production and Growth (一) 目的与要求 Chapter 25 is the first chapter in a four-chapter sequence on the production of output in the long run. Chapter 25 addresses the determinants of the level and growth rate of output. We find that capital and labor are among the primary determinants of output. In Chapter 26, we address how saving and investment in capital goods affect the production of output, and in Chapter 27, we learn about some of the tools people and firms use when choosing capital projects in which to invest. In Chapter 28, we address the market for labor. The purpose of Chapter 25 is to examine the long-run determinants of both the level and the growth rate of real GDP per person. Along the way, we will discover the factors that determine the productivity of workers and address what governments might do to improve the productivity of their citizens. In this chapter, students should: 1. see how much economic growth differs around the world 2. consider why productivity is the key determinant of a country’s standard of living 3. analyze the factors that determine a country’s productivity 4. examine how a country’s policies influence its productivity growth (二) 教学内容 I. Economic Growth Around the World A. Table 1 shows data on real GDP per person for 13 countries during different periods of time. 1. The data reveal the fact that living standards vary a great deal between these countries. 2. Growth rates are also reported in the table. Japan has had the largest growth rate over time, 2.76% per year (on average). 3. Because of different growth rates, the ranking of countries by income per person changes over time. a. In the late 19th century, the United Kingdom was the richest country in the world